There isn't even ONE reason multiple lawsuits would be helpful. We have combined/class action lawsuits for a reason. It protects both sides and the courts from excessive legal costs.

I really don't understand how anyone could have possibly thought there was a chance of it not being combined. It is just the way the courts operate.

He asked the plaintiffs to have a meeting and to combine their lawsuits. He asked the plaintiffs and the defendants to have a meeting.

This is all 100% standard and perfectly expected. It doesn't count as "news" anymore than it counts as news that the weather is pleasant today in San Diego or that it will snow in December in the Midwest.

The plaintiffs and defense in a civil lawsuit always have to meet. This is standard operating procedure. Again, not news because it was perfectly expected. It is how the courts operate.

Also, the government benefits how exactly by a settlement? They get all of the earnings the companies generate. I'm curious how getting less in return for absolutely nothing would be favorable. (the courts do not have power to legislate, so leave any hoped for legislative work out of your response)

The entire reason why it makes sense for them to settle is because a court decision that is in favor of the shareholders is going to make the government have to cough up the money they have gotten from the agreement you are talking about.

Drawing out the process might make the damages more extreme. Even if those damages are equal to the amount of money they have gotten through the agreement, losing in court on this issue and having to payout a bunch of money at some future date could be disruptive to whatever budget situation exists at that time.

Even though the process that the judge is asking them to go through is part of the normal course of litigation, that process in this particular situation is advantageous to the plaintiffs because of the types of questions the judge is asking them to answer in his order. In order to provide credible responses to those questions they are going to have to formulate what their arguments are going to be in court. I think the politics of the situation will make it more difficult to take the gloves off and make the type of arguments they might make in litigation that doesn't have direct tie-ins to executive branch decisions.

Um, no. Dividends aren't illegal. Senior preferred stock isn't illegal.

That has nothing to do with the defendants. Do you even know who the defendants are?!?

The lawsuit, at best, would get the company out of receivership and force the company to pay on its junior preferred shares.

Everyone hates FNMA. The politics of the situation aren't in the plaintiff's favor. Also, I'm fairly sure the current executive branch doesn't really feel that kind towards the previous administration who put them into conservatorship. LOL, Obama protecting Bush from political harm argument.

What you described is why any particular civil lawsuit might come to a settlement. There is no chance that this one can as the defendant's hands are completely tied!

Oh, and you can see that the previous owners of the stock when it was between $50 and $70 per share already settled with FNMA for the company wrecking itself.

They got $0.20/share minus fees (so $0.10/share).

This is a just a way for you to bring up some settlement that has nothing to do with the current circumstances.

But I'll even use what you have written to make a point. The point is that the valuation of settlement in the current lawsuits is not just one sided. A decision that releases them from conservatorship is just as valuable as some large payout to the shareholders would be. Obviously a settlement like that only influences the price of the stock of current stock holders. But like I've already argued the upside for that type of decision is a lot.

That is why having multiple lawsuits with different claims under one judge is important. It makes it both possible and efficient to have a partially favorable decision while still allowing unsettled parts of the litigation to proceed.

I think the optimal decision for the government would be to settle some of the litigation but fight the claims of shareholders that owned the stock before the conservatorship was initiated. The government could argue that releasing them from conservatorship negates a takings claim by the pre-conservatorship shareholders or makes them whole within the latitude that they have under HERA.

Did you actually bother to read the lawsuits? They are public record.

I got bored doing your work for you, but I did get through a few of them. Perry Capital is suing to have the third amendment to the agreement with the Treasury ended so that the junior preferred shares can be paid. Fairholme Funds is suing to have the third amendment to the agreement with the Treasury ended so that the junior preferred shares can be paid. Liao is suing to have the third amendment to the agreement with the Treasury ended so that the junior preferred shares can be paid.

What are you basing this on? None of these lawsuits are seeking an end to the conservatorship.

If the terms of the conservatorship are modified then the negative effects of it won't matter anymore. It is difficult to imagine a favorable decision that doesn't outline a fair set of terms for conservatorship itself.

Just because specific legislation is written that allows for government agencies to put the companies into the legislatively defined conditions that the legislation defines as conservatorship, does not mean that those government agencies can be granted authority in which no process exists that can remedy grievances that would arise if that authority were used to take actions that were not within the scope of the authority that the legislation grants.

The lack of a review process or time limit for the authority granted under the legislation very likely renders the totality of the legislation unconstitutional. The open ended timeframe for the usability of the unilateral power granted under the legislation directly interferes with other Constitutionally protected rights whose authority for adherence super-cedes in hierarchy the adherent authority that the Congress is able to grant through any legislation that does not fundamentally alter the framework for when such power is able to be granted.

So, you haven't read the lawsuits. My. Work here is done.

I've read two of them. The other ones I can't easily access because it requires me to subscribe to a law database and pay fees to read them. From what I have read it seems like reading one of them is enough to know most of what I need to know about all of them.

I could be wrong.

NEW YORK (MarketWatch) - Pershing Square Capital Management LP and its chief executive, Bill Ackman, disclosed a 9.77% stake in the Federal Home Loan Mortgage Corp. (FMCC), more commonly known as Freddie Mac, and a 9.98% stake in the Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, according to filings Friday with the Securities and Exchange Commission. Pershing said it has acquired 63.5 million common shares in Freddie Mac and 115.6 million common shares in Fannie Mae and described both as undervalued. The moves come two day after Fairholme Capital Management, a Miami-based mutual-fund company, offered to buy parts of Freddie Mac and Fannie Mae and recapitalize them. Pershing said it may enter into discussions about the firms with the management, board and shareholders of both companies as well as the federal government. Freddie Mac shares soared 10% in early trade while shares of Fannie Mae leapt more than 9%.

Congratulations. Now you have a half-way decent chance! Not sure how much of one, since Fairholme Capital isn't really in the driver's seat here, but it is a much better chance than it was before.

If they can manage to convince Congress, you have a winner. Again, don't know the odds of that, or even of the legality of the proposal. I did look at the Fairholme presentation and it does have a couple of gaping holes in it, but that doesn't matter on Capital Hill since they are a bunch of idiots.

UPDATE: Senate confirms Mel Watt to lead FHFA
6:02p ET December 10, 2013 (MarketWatch)
UPDATE: Senate confirms Mel Watt to lead FHFA

WASHINGTON (MarketWatch) -- The Senate on Tuesday confirmed Rep. Mel Watt to lead the Federal Housing Finance Agency, the regulator overseeing Fannie Mae (FNMA) and Freddie Mac (FMCC). Watt, a North Carolina Democrat, was nominated by President Barack Obama in May but ran into Republican opposition over his credentials. Senate rules approved in November limited Republicans' ability to block Obama's nominees, and Watt was confirmed with 57 yes votes to 41 no votes. Watt replaces Ed DeMarco, who is liked by Republicans

The proposal is not legal for the same reasons that the current situation is not legal. I think they knew when they made it that it was very unlikely to be accepted. The real goal though is political and legal.

If the government turns down a 50 billion dollar offer on companies that members of Congress and other government officials are claiming to be worthless, it gives insight into their real thoughts on the situation.

It also removes outs that they might have otherwise had to claim that no private solution exists to justify a unilateral or punitive action they might take. If they liquidate a company they could have gotten 50 billion for then how can justify declaring it insolvent?

I think it's a brilliant move. It's the strongest publicly visible statement of the strength of the GSE's and their potential value.

The proposal is not illegal.

They aren't claiming the companies to be worthless.

They haven't been declaring them insolvent; they've been saying that they are going to wind them down, which is completely different. They would have been insolvent had the feds not stepped in.

I don't know of anyone who has said that they are going to wind them down because of the reasons you gave, so no outs were removed.

What I am trying to say is that the proposal to purchase the companies insurance business for 50 billion dollars benefits common shareholders in the companies in a legal sense because it contributes to legal arguments if somehow actions by the government to wind-down the companies, either through their current stated intentions, or otherwise result in common shareholders recovering less money than they would have gotten if such offers had been entertained.

So even though it would be self-dealing to accept such offers because they contradict the purpose of conservatorship as outlined in HERA, it implants counter arguments into the public record for whatever actions they might take in the future that they might attempt to justify as necessary to counter-act a lack of private capital or to avert losses to taxpayers.

The fundamental nature and scope of the actions taken directly relate to and influence the financial prospects of all the parties that have a financial interest in those choices. No court would accept at face value the concept that an action by the government, even if otherwise legal, which suspends the rights and privileges of owners of property erases the due process rights of that ownership.

The entire purpose of the law is to define the rules for what we can and cannot do according to that law. The constitution determines the scope and limitations of what the law can be. No one is supposed to be above the law. This is the reason that presidents can be impeached, for example. Members of Congress can be removed and arrested. And in certain situations, like this one, the government can be sued.

People can argue that providing a bail-out gives the government unlimited choice in what they do with the companies. Well the law explicitly disagrees with that concept fundamentally. The entire purpose of the law is to eliminate unilateralism from the system in order to make sure that no individual or agency of the government can prevent itself by use of its power from outside review of the proper use of that power. 'Proper' means legal. Many times, especially with government agencies, the review of that power becomes constitutional. It does so because self-review of government actions is the only remedy that can practically over-ride improper decisions.

It comes down to one simple question that will determine the outcome of this situation. And that question is, Did Ed DeMarco violate his fiduciary duty to "preserve and conserve the assets of the enterprises" when he signed an agreement with the Treasury that gave all of the Enterprises profits away forever? The second obvious question, Is the action by Ed DeMarco consistent with returning the Enterprises to a "sound and solvent" condition?

There being 20 lawsuits is evidence by itself that shareholders would not have agreed to a deal like the one Ed DeMarco did. Even the original deal that was done with board approval is being challenged. The primary goal of most negotiations is to get the best deal that you can given the merits of your negotiating position. It is unlikely that shareholders in Fannie Mae and Freddie Mac if given free will to negotiate would have accepted the terms of the deal that the government was 'offering'.

Every step of the way the negotiating has either been under stress or duress. While such negotiations might be legal with private parties of relatively equal power, they become unlawful in many situations if the government is the party exerting its power in a way that doesn't allow the opposing party to consider the governments motives for being compelled to make the deal.

It essentially became a situation where the government felt it had no choice but to make the deal to save the economy and so it didn't allow Fannie Mae or Freddie Mac to benefit in the negotiation by the knowledge of that information. Knowing that the government has to make the deal should have allowed the companies to negotiate far more favorable terms.

I had kept up with this thread for a long time and gave up mid last year. Looks like not keeping up on FNMA was a mistake. What did I miss?

about a 25x return apparently.

About 3.50. I'm calling the bottomish here. It might float around but it's not going below 3 again.

It's going to 0.

Not sure how many years it will take though.

What is the path for that to happen? If you are sure it's going to 0 then how does it get there from here? If a company earns 20 billion a year and its market cap is at 5 billion dollars then how could that be worthless?

Now if you respond by saying that the government is going to wipe-out the shareholders how exactly does that happen?

Even if many of those politicians and the public want it to be worthless, individually they do not have the power to force that opinion into reality. They also do not have the ability to write a piece of legislation that doesn't result in successful litigation.

The reason they do not have the ability to write it is because it can't legally be done. Even if it were somehow possible to write a legal piece of legislation that legislation has to get through the house and senate and be signed by the president against what will be and is already fierce opposition. Then after they pass that magical legislation they have to win all monetary court challenges. So although it might be possible to write a piece of functioning legislation that eliminates the GSEs duopoly and dominance in the housing finance system, getting the monetary value of the GSEs legislatively and it holding up in court will be an epic challenge that they are going to lose. It's like trying to do the Cinnamon Challenge with an entire tractor trailer load of the stuff.

The Housing Economic Recovery Act has a receivership process written into it as well as a conservatorship process. The GSEs are in conservatorship. The goal of conservatorship is to "preserve and conserve the assets of the Enterprises". What is rarely mentioned in the media is that the government has already made a 60 billion dollar profit on these investments. The companies were not lent 187 billion dollars in total. That amount of money includes ALL of the accumulated dividends at 10 percent per annum. Which when you seperate and calculate the amount of dividends paid equals approx 60 billion dollars for Fannie and Freddie combined.

Eliminating the uncertainty of this situation is very important for the housing market and greater economy. I think most shareholders would be excited for any reasonable settlement that happened sooner than waiting for a court decision(s) that might take a couple more years. I sincerely believe that the bail-outs made the company better because it forced discipline on the management of the firms to mitigate losses. They have never been ran better.

Not only do I not think that these stocks are going to zero, I think the absolute opposite of that opinion. I think that dollar for dollar right now at this price and these conditions that Fannie Mae is the best investment in the entire world.

Some random numbers people who don't read 10Ks might find interesting. All in millions of dollars:

Total assets $3,270,108
Liabilities $3,260,517

Senior preferred stock $117,149
Junior preferred stock $19,130
Common stock $4,099
Warrant for common stock held by the government $3,275

So, you could buy $9,591 worth of net assets for the mere price of $143,653. If the government specifically says "oops, our bad" and cancels the senior preferred stock and the warrant, you could only be paying $23,229. That is only 2.42 times book value.

Net revenue $26,334
Payment to treasury $82,500

You cannot fairly value the company based on book value because over 80 percent of the liabilities are theorectial liabilities that are based on the market value of the houses being insured. For disclosure and accounting purposes the theoretical maximum exposure of the portfolio is listed and that amount is stated as if no aspects of those potential liabilites are offset by the fundamential details of the assets that are being insured.

For example, if someone has a mortgage that is insured against default the buyer of that mortgage pays a fixed percentage of their monthly payment (currently .50 percent of the mortgage) to the mortgage company or servicer and that money is then passed on to Fannie Mae for taking the default risk of that mortgage in exchange for the premium. Simply because it's technically possible for Fannie Mae to have to pay 100 percent of a defaulted mortgage is the reason that it appears to skew their book value if analyzed as you have done.

There are two correct ways to determine what an investment in the equity of Fannie Mae is worth because there are only two scenerios in which a fair valuation can be determined.

Either a liquidation has to convert the theoretical assets and liabilities of the company into a final cash value, or the market has to value the company out of conservatorship in normal market conditions.

It is not the potential risk of something that determines its value, it is the actual risk of something that determines its value. The characteristics in the liabilities of Fannie Mae are why the company is so valuable.

A mortgage that has a 70 percent loan-to-value ratio in which the borrower has a 760 FICO score is almost risk-free. Which makes insuring that mortgage profitable for the company. Now on their balance sheet you can't see that strength and normally as a shareholder you wouldn't need to because all you would need to determine the actual risk of their liabilities at different times would be to look at their net interest margin,net profit,operating costs, and actual leverage ratios.

Stock ownership is not stock price ownership. It is company ownership. As an owner of this company I have a right to the liquidation value of the company whether its listed on a stock exchange or not listed on an exchange at all. That is what owning part of a business is, regardless of how many owners there are and who the owners are. In this country, the United States, if president Obama himself owns shares in a company I own we have equal rights. He can't use his position of power so that I make less money and he makes more money. Just like the government can't use its preferred stock ownership to lessen the value of my common stock to accomplish political policy.

My rights as an owner of this company are ahead of presidential policy and congressional policy. Only when I either make the choice to sell what I own/ or am provided just compensation as outlined in the fifth amendment of the Constitution does my ownership interest end.

Damn it. There should be a better way of saying it than, "well, reality disagrees."

As we have been going back and forth on it, you know my position. I think that there is some chance that it works out for you.

I gave the math. Do with it as you will. I really don't care.

http://www.bloomberg.com/news/2014-0...mortgages.html